- The Hungarian central bank (MNB) has decided to cut its key rate by 50 basis points to 8% at today’s monetary policy meeting. This came out completely in line with both our and consensus expectations.
- We believe that today’s 50bp rate cut, which was less aggressive compared with the 100bp cut delivered at July’s monetary policy setting meeting, has to be seen in light of the less stable Hungarian forint (HUF) recently, which prevented the MNB from cutting more aggressively.
- The Hungarian economy remains in deep recession with no real inflationary pressure. Therefore if the risk appetite continues to be present in financial markets – supporting the Hungarian FX and the solid demand for Hungarian fixed-income markets – the MNB will continue in monetary easing providing stimulus to the stressed Hungarian economy. After today’s rate cut, we expect another 100bp cuts to be delivered over the next three to six months. The market pricing suggests roughly between 100bp to 150bp worth of cuts to be delivered over the next six months.
There was a very limited reaction in FX markets after the rate decision as the size of the rate cut was broadly expected. Taking into account the very limited reaction in FX markets, the MNB will continue to feel comfortable with further monetary easing going forward, although this would, of course, be conditional on the development of the forint. We expect to receive more information about monetary policy when the press statement is released (due today at 15:00 CET).
